Until recently, the Seattle-area housing market tended to paint over home sellers’ mistakes.
It didn’t matter much if you spent months on unnecessary renovations when houses were shooting up in value, and sellers were getting offers well above the listed price. The several months’ delay in getting a home ready usually worked in a seller’s favor. But as the market cooled, the situation has changed.
Kirkland-based real estate broker Max Rombakh, of Windemere Real Estate, says one seller in the Bridle Trails neighborhood of Kirkland sank $400,000 into remodeling, watched home sales and prices fade during the eight months the renovation was ongoing, and ultimately took a loss on the renovation investment.
Smaller jobs, like refinishing floors, repainting rooms, updating the lighting, and replacing old appliances or broken fixtures are still a routine part of getting a home ready, but Rombakh said he cautions sellers often to weigh the net return of a remodel. Usually, he advises against doing major renovations, like additions or a total kitchen rebuild.
“I always tell my clients if it is not going to help sell the house for more or sell faster, don’t bother doing it,” Rombakh said.
This is not to say that all homeowners should be wary of major remodels.
Modeling a dream home
When Steve and Sarah Trester bought a 17-year-old home in Woodinville in January 2022, they embarked on a full renovation before moving in last July.
The couple loved the home’s good bones, the privacy of its 1.5 acres, the pretty landscaping and the lovely Hollywood Hill neighborhood. They wanted more space and a big backyard for their three growing boys, plus the house came with a charming old barn that they could not have in their old neighborhood in Kirkland.
As for the home’s interior, the Tresters viewed that as an open canvas, an opportunity to do the updates and design of their dreams. So, they decided to gut every room, touch every wall, replace every cabinet, fixture and appliance. They did the interior renovation in one grand swoop, figuring if they did the work in stages, the job might never get done.
“It is more of a long-term home for us, and so we wanted to remodel it before we moved in and just tackle the whole thing rather than doing a room at a time,” Steve Trester said.
The Tresters have no regrets, though it was stressful at times. They began the remodel while their Kirkland property went for sale and eventually closed during the Eastside’s sizzling housing market of April 2022.
“There were definitely times where we were juggling a lot, and it definitely tested us a little bit, but we’re pretty happy with how things have gone,” Trester said.
Big business
Near the peak in 2021, the Seattle-area home renovation market was a $5 billion business with 282,000 homeowners reporting projects, according to Harvard University’s Joint Center for Housing Studies.
There is no recent data on how Seattle’s reno market has fared since; however, forces are working against it. For one thing, fewer homes were changing hands in Seattle and the Eastside (1,189 homes combined were sold in June as opposed to 1,467 a year earlier, the Northwest Multiple Listing Service reports). And new buyers are still the most likely group to do a major reno.
About a fifth of home renovations nationwide happen around home sales, Harvard’s research shows, and roughly 75% of all sellers do renovations pre-sale and spend on average more than $12,000. But recent homeowners like the Tresters spend considerably more on renovations (30% more on average) than homeowners who have been staying in place do.
Another factor that could be discouraging homeowners from remodeling is the cost. It has been more expensive to get a loan to finance a big renovation. A couple of years ago, interest rates were under 3% on long-term fixed loans, and homes in the Seattle area were rapidly going up in value. So, a homeowner could do a quick and easy cash-out refinance to pay for a major remodel.
Often, you could refinance into a cheaper 30-year-fixed loan and cash out the equity to do an addition or redo a kitchen and bathrooms. But you can’t do that anymore. It makes no sense to refinance out of a long-term loan at under 4% (which many homeowners today have) into one at the current rates of around 6.5% to 7%.
How to pay for renovations
Rather, homeowners need to obtain a second mortgage or a home equity line of credit. The interest rates on these loans range from about 10% to 12%, more than double what you would have paid two years ago for the same loan. Second mortgages and HELOCs are also viewed as riskier loans. You’ll need good to excellent credit to qualify, and you’ll need to pay down credit cards before applying.
Ryan Halvorson, president of Bellevue’s Halvorson Mortgage, said current rates are much closer to historical norms. However, in the short term, the higher rates are discouraging would-be buyers and renovators.
“We’re not seeing the normal activity of people moving around within the market like we normally would,” Halvorson said. “It seems like people are hoarding their 3% mortgage rates. People are much more likely to make improvements to an existing house to make it fit their needs.”
Contractor availability
While Rombakh described Seattle’s housing market as “very hit and miss,” it is by no means depressed. In May, Seattle homes sold on average in eight days and for slightly above the listed price, though prices were down 6.6% year over year, according to Redfin. Many people who bought these homes will renovate. Contractors can also expect business from people who have decided to stay in their existing home and renovate for the long term.
Jason Legat, founder and president of Seattle-based Model Remodel, says he hasn’t seen a drop in business. Major remodels can take up to a year depending on the needed permits. His company has remodeling jobs scheduled through 2025. And the outlook looks good.
Recently, the company completed a big job in Seattle’s Greenwood neighborhood and planted a sign in the front yard. Legat figures that sign alone generated about a dozen calls from homeowners who are interested in renovating. Far from worrying about a downturn, Legat has been hiring workers, anticipating a busy next two years. He believes other established remodeling companies also are doing well.
“When we look out over the next six to 18 months and we see that we need to hire people to satisfy the number of projects that we have coming in, that there are contracts, that gives me a positive feeling toward the future,” Legat said. “When we start seeing design contracts and construction contracts start to taper, then I would be concerned, but as of right now that’s not what we’re seeing.”
Smaller companies and independent contractors could be a different story, though.
Independent contractor Dave York, whose company slogan is “No Small Job is Too Big,” says the business has felt a jolt from every bit of turbulence in the local and national economy this year.
York and his partner, Trish Svennungsen of Reliable Services, do small reno jobs and handyman work around unincorporated Kent and Covington. His phone stopped ringing completely earlier this summer when the debt-ceiling fight in Congress and recession forecasts spooked customers. Now he’s getting more calls but says business isn’t what it was last summer.
“We have dropped off a lot, I would say 60%,” York said.
Homeowner advantages
A slightly slower remodeling market could work in homeowners’ favor, however. More contractors could find themselves competing for customers than the other way around. One other piece of good news for people planning to remodel is that material shortages aren’t as big a problem.
“As far as supply chain, we’ve seen things really level out,” Legat said. “The worst culprit in the last six to nine months were dishwashers, so we ended up buying five or 10 dishwashers to have as temporary dishwashers for clients while waiting for their dishwashers to show up.”
Material costs haven’t come down, but they’re also no longer rapidly escalating. Legat says people should order appliances and materials well in advance and budget at least 10% above the project’s contract price.
Sarah Trester said the cost of their home renovation opened their eyes. It was well above what they initially had budgeted.
Now that their home is finished, they’re renovating their barn. While they’re excited about the project, they’re sticking to a budget, and they learned from the home remodel that it is a good idea to communicate regularly with their contractor.
“We were a little sticker-shocked on the price of everything,” she said. “So, I would say, understand the scope of everything because it is sometimes not the same thing to you and your builder. He would view it differently. Now that we have worked with him, we are really dialed into the barn remodel and the scope of the project ahead of time.”
